Naira To Dollar Exchange Rate: Economists Offer Views On Recent Inflation Surge

Naira To Dollar Exchange Rate: Economists Offer Views On Recent Inflation SurgeNigerians may soon see lower prices for imported goods if the country’s currency, the Naira, continues its positive trajectory against the US dollar, economists have noted. The recent surge in the Naira’s value is attributed to the new foreign exchange market system implemented by the Central Bank of Nigeria (CBN), which has been praised for contributing to the strengthening of the Naira.....KINDLY READ THE FULL STORY HERE▶

Economists are optimistic that this development will help reduce Nigeria’s headline inflation, which stood at 33.88% in October 2024. Speaking in separate interviews, Gbolade Idakolo, CEO of SD & D Capital Management, and Professor Godwin Oyedokun, an academic at Lead City University, shared their insights on the situation.

As of December 9, 2024, the Naira was valued at ₦1,538.50 per dollar, a significant improvement from ₦1,740 on November 9, 2024. This represents a month-on-month appreciation of ₦201.5 and ₦110 in the official and black markets, respectively, despite a slight depreciation at the start of the week.

This positive shift follows the CBN’s introduction of the Electronic Foreign Exchange Matching System (EFEMS), which aims to eliminate market distortions and increase transparency in the forex market. While this is not the first time the Naira has appreciated due to CBN interventions, previous gains have often been short-lived. However, there is hope that the recent improvement will endure.

The appreciation of the Naira has also affected the exchange rate for import duties and cargo clearance. As of the previous week, the exchange rate for import duties was ₦1,645 per dollar. This change is expected to reduce clearing charges, which are a significant component of the cost of imported goods, potentially leading to lower prices for such goods.

Idakolo emphasized the transformative role of the EFEMS platform, noting that it has increased transparency by consolidating all forex bids into one centralized platform. This has reduced speculation in the parallel (black) market, which has often undermined the Naira’s value. He believes that with continued oversight from the CBN, the strengthened Naira will lead to reduced import duties, thereby lowering the cost of imported goods.

“The EFEMS platform is a game changer due to its transparency,” Idakolo explained. “There is no room for manipulation, and all quotes are visible to both buyers and sellers. This has created fear in the parallel market, reducing harmful speculation.”

While Idakolo expressed optimism about the future, Oyedokun pointed out that the Naira’s appreciation can be attributed to CBN interventions, increased foreign exchange inflows, and lower demand for dollars. He also suggested that the lower exchange rate for import duties could lead to cheaper imported goods, though this effect could be mitigated by other factors, such as global supply chain disruptions, domestic inflation, and importer behavior.

“Importers may not always pass on the savings to consumers, as they might prefer to increase their profit margins,” Oyedokun noted.

Both economists stressed the importance of the CBN’s continued efforts to maintain macroeconomic stability, attract foreign investment, and address structural challenges such as corruption, insecurity, and inadequate infrastructure. Oyedokun also highlighted the need for ongoing strategic interventions to sustain the Naira’s strength.

“While the Naira’s appreciation is promising, it may be temporary,” he warned. “The CBN must continue its monitoring and interventions to ensure the long-term stability of the Naira.”

In conclusion, the recent positive trends in the Naira’s value offer hope for a reduction in the prices of imported goods, but sustained efforts from the CBN and broader economic stability will be crucial to ensuring these benefits are realized in the long run.

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